Sino-Forest Corp. has unveiled a restructuring plan to wind up its business operations and transfer its holdings to creditors – including giving them a majority stake in a new "litigation trust" to pursue legal claims against other parties.
The Chinese forestry company, once worth more than $6-billion, has been operating under court protection since March and has given up trying to sell its timber and other operations after receiving no acceptable bids for its assets. It has filed a new restructuring plan in Ontario court to transfer its assets directly to its creditors.
"The board of directors of Sino-Forest believes that the plan represents the best available outcome in the circumstances," the company said in a release.
The restructuring plan revealed Tuesday does not provide for any recovery of money by current shareholders, and Sino-Forest's existing shares, which have not been traded since last summer, will be cancelled if the plan is approved.
Sino-Forest's holdings include not only timber and forestry assets, but also a new "litigation trust" being created to hold the rights to sue third parties for losses incurred by the company. Note holders and certain other creditors would receive a 75-per-cent stake in the trust under the restructuring plan, which still needs court and creditor approvals.
Sino-Forest has previously disclosed that it is suing short-seller Carson Block and his company, Muddy Waters LLC, which issued a damning report on the company in June, 2011, alleging it was a "massive Ponzi scheme."
The company has also suggested it may pursue legal action against intermediaries that owe the company $1-billion. They were identified as customers who owe the money to Sino-Forest subsidiaries in China and the British Virgin Islands.
As of late July, the company has already sent 17 demand letters to the intermediaries, and Sino-Forest warned it would "take all steps necessary to collect receivables owing to it."
The problem is that the intermediaries are murky entities based in China, and a number of them have recently deregistered, terminating the existence of the companies.
Sino-Forest alleges that the deregistration of the companies was improper under Chinese law. A report filed Friday by the company's court-appointed monitor, FTI Consulting Canada Inc., said the monitor is getting legal advice about possible civil or criminal remedies.
The monitor's report said its investigations have made it apparent that there are problems with "many aspects" of the business transactions between Sino-Forest and the intermediary firms.
"There has always been very little insight into the business of the [intermediaries], including their books and records, cash collections and disbursements," the report said.
Some of the intermediary firms were allegedly controlled by Sino-Forest. The Ontario Securities Commission, which filed fraud allegations against Sino-Forest and its former top executives in May, alleged that Sino-Forest concealed its control over some intermediary firms that claimed to be buying timber from Sino-Forest.
The OSC has accused Sino-Forest and five former top executives of conducting one of Canada's largest frauds, misleading shareholders about the firm's assets and revenue, and falsifying evidence of ownership of the majority of its timber holdings in China.
Sino-Forest said it is seeking a court hearing Aug. 28 for an order authorizing a meeting of creditors in September or October. It said it intends to complete the restructuring by Nov. 30.